The National Savings Certificate (NSC) is a fixed-income investment scheme in India that is backed by the government.
It is part of the small savings schemes offered by the Indian government and is primarily designed to encourage savings and provide a safe investment option for individuals. It is an initiative to encourage individuals – mainly small to mid-income investors to invest while saving on income tax.
Key features of the National Savings Certificate (NSC) scheme in India:
Issuer: The NSC is issued by the Department of Posts, Government of India, and is available through post offices across the country.
Fixed income: Currently, the scheme is generating a guaranteed return at the rate of 7.7% for investors. The returns offered by NSC have generally been higher than FDs.
Types: The scheme originally had two types of certificates – NSC VIII Issue (5-year tenure) and NSC IX Issue (10-year tenure). With the discontinuation of the latter one in December 2015, only the former issue is available for subscription.
Interest Rate: The interest rate on NSC is set by the government and is subject to change. The interest is compounded annually. It offers an interest rate of 7.7%.
Investment Period: NSC has a fixed maturity period, which is currently set at 5 years. The interest is reinvested every year, and the maturity amount is paid at the end of the 5-year period.
Denominations: NSC is available in two denominations: Rs. 100 and Rs. 1,000. There is no maximum limit on the purchase of NSC.
Transferability: NSC certificates can be transferred from one person to another and from one post office to another.
Nomination Facility: Investors can nominate a person who will receive the maturity amount in case of the investor's death.
Loan collateral: Banks and NBFCs accept NSC as collateral or security for secured loans.
Tax Implications: While there is no upper limit on the amount that can be invested in NSC, only investments of up to Rs.1.5 lakh a year can earn a tax rebate under Section 80C of the Income Tax Act of 1961. Furthermore, the interest earned on the certificates is also added back to the initial investment and qualifies for a tax break as well.
Premature Withdrawal: While NSC has a fixed maturity period of 5 years, premature withdrawal is allowed under certain conditions. However, in such cases, the interest rate applicable may be lower, and the investor may not receive the full interest accrued.
Eligibility: The person must be an Indian citizen. NRIs are not permitted to invest in NSC. Hindu Undivided Families (HUFs), Trusts, and Private and Public Limited Companies (PLCs) are not permitted to invest in NSC. There is no minimum or maximum age for purchasing a certificate.
The NSC offers guaranteed interest and complete capital protection, just like some other fixed income instruments - Public Provident Fund and Post Office FDs. However, they cannot deliver inflation-beating returns like tax saving Mutual Funds and National Pension Systems.
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